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Selling out to get 'asses in classes'

26 November 2004

Stephen Phillips looks at the hard-sell culture at some US for-profit colleges.

The picture of the University of Phoenix, the largest for-profit university, that emerged from a recent scathing US Education Department report, was of an organisation that could have been flogging vacuum cleaners rather than offering higher education. Recruiters who got the most "asses in classes" won bonuses and jollies to Las Vegas; while staff "not making the enrolment numbers" were consigned to manning the phones in a chamber, dubbed the Red Room, with managers "hovering" over them, says the report, compiled from the testimonies of more than 60 current and former Phoenix employees and from visits to the university's Arizona headquarters and California operations.

Phoenix tried to thwart the probe, the report adds, instructing outspoken managers to take leave when inspectors visited and removing sales performance rankings from office walls. Government student grants were used as a "tool for closing a sale" and recruiters put the hard sell on unqualified prospective students unlikely to "benefit from the training".

A Byzantine pay formula was "smoke and mirrors", employees told officials, to hide the fact that "butts in seats", in Phoenix parlance, were all that counted - violating a government ban on paying admissions staff commissions for signing up students.

In September, Apollo Group, Phoenix's parent company, was ordered to pay a record $9.8 million (£5.3 million) fine. But compared with the $28.2 million Apollo chief executive Todd Nelson got last year for his stock options and Apollo's annual revenue of $1.8 billion, it was small change.

With nearly 240,000 students, online and across its 142 campuses, Phoenix is America's largest university - the most populous traditional campus, the University of Texas at Austin, has a mere 50,000 students.

Apollo has contested the findings. It says that its cash settlement implies no admission of wrongdoing and protests that the report misrepresents recruitment practices and relies on "allegations" from disgruntled ex-staff, since proven "misleading or inaccurate" by an internal audit that found current procedures meet regulations.

The revelations follow hard on the heels of probes into several of Phoenix's competitors. US government agents raided ITT Educational Services' Indianapolis headquarters and ten campuses in February in connection with an investigation by the Securities and Exchanges Commission, which regulates US firms, into allegations that it falsified student grades and attendance records to collect government subsidies. In June, for-profit Career Education announced that it was under SEC investigation for allegedly inflating student enrolment; while in September, Corinthian Colleges was the subject of a similar probe.

Such probes raise questions about an industry that is expanding at three times the rate of traditional campuses and is estimated to account for one in 12 US students. All this at a time when law-makers are poised to enact changes that could open government student aid programmes to for-profit colleges.

For-profit operators have created a profitable niche catering to working adults and mature students looking to boost their earning power and job prospects. Business administration, information technology and healthcare management degrees are particularly popular.

This year, Phoenix moved closer to muscling in on traditional campuses' territory by lowering its minimum age from 23 to 21, and Apollo opened an institution targeting young adults. Phoenix's first Mexican campus, which will open next year, will admit 18-year-olds. Such opportunism has turned for-profit colleges into Wall Street darlings. Since 1994, Apollo's stock market valuation has appreciated 11,000 per cent.

But the report on Phoenix has been greeted with disappointment by many academics, especially given that it is one of the few for-profit institutions accredited by the Higher Learning Commission, one of the regional panels that vet US institutions, and that many of its students are paid by their employers rather than through government aid. It has taught traditional campuses a thing or two about customer service and has shown how to make a success of online courses.

David Breneman, director of the For-Profit Higher Education Research Project and dean of the University of Virginia's Curry School of Education, is impressed by Phoenix, but adds that it is precisely because Phoenix leaves so little to chance that the report rings true, he says. "It may well be that the early theorising about this sector not being trustworthy is true," he says.

Barmak Nassirian of the American Association of Collegiate Registrars and Admissions Officers says the report suggests Phoenix crossed a line.

"Admissions is a counselling profession, you're supposed to be paying attention to the interests of the person you're advising," he says.

David Kirp, professor of public policy at the University of California, Berkeley, and author of Shakespeare, Einstein and the Bottom Line: The Marketing of Higher Education , says his research at for-profit Devry University found recruiters who went after "long-shot (students) who (often) washed out after a semester" following the collection of tuition payments. But such practices aren't limited to for-profit institutions, he adds, noting that some traditional US universities have farmed out their admissions to private firms with similar results.

Nevertheless, there are fears that proposed changes to the US Higher Education Act, up for re-authorisation next year, will give greater licence to the alleged abuses among for-profit institutions. With President George W. Bush's re-election, there is speculation that controls on for-profit operators, instituted in 1992, might be loosened. Nassirian says the 1992 legislation "cleaned up the sector, removed the bad apples and improved student default rates". The changes proposed, including abolishing limits on the proportion of government-funded students for-profit operators may accept, extending public assistance to students at correspondence colleges and requiring traditional institutions to accept academic credits gained at for-profit institutions, "would represent a historical reversal of earlier integrity measures", he adds.

The Bush Administration has already allowed a permissive reading of the restrictions on linking admission staff's pay to enrolment, allowing "salary adjustments based on performance", provided the bonus and the event that triggered it are six months apart, he says.

"It is like pulling the pin on a grenade, putting it in the face of the public and hoping it doesn't blow up," remarks Nassirian, noting the largesse for-profit university lobbyists have bestowed on Congressional higher education committee members.

But observers say Congress may not be willing to do the bidding of the for-profit sector amid the negative publicity. Breneman says: "If they're getting bad press, Congress may not have the stomach for (these changes)."

Meanwhile, the market may mete out its own justice. Breneman says he's fielded "calls from large companies taking a flinty-eyed look at whether they want to continue supporting tuition for employees at these places".